US shares fall after Europe debt downgrades

After trading in a narrow range for most of the day, the major Wall Street indices closed slightly lower on Friday as investors weighed modestly positive news about the American labour market against more evidence of troubles in Europe.

The Labor Department reported that the US economy added more jobs than expected last month, easing investors’ fears that the country was slipping into recession. But Fitch Ratings downgraded the government debt of Spain and Italy, sending the stockmarket and the euro marginally lower in afternoon trading.

The S&P 500 stock index closed down 9.51 points, or 0.8 per cent, at 1155.46, while the Dow Jones industrial average fell 20.21 points, or 0.2 per cent, to 11,103.12. The Nasdaq composite index lost 27.47 points, or 1.1 per cent, to close at 2479.35. Yields on 10-year US Treasury note rose to 2.08 per cent from 1.99 per cent late on Thursday.

The S&P 500 index finished the week up 2.1 per cent, buoyed by an astonishing late-day rally on Tuesday as well as strong sessions on Wednesday and Thursday. It recovered from steep losses earlier in the week, when it briefly traded in bear market territory, defined as a 20 per cent drop from its previous peak. The Dow Jones index gained 1.7 per cent for the week, while the Nasdaq rose 2.6 per cent.

Third-quarter earnings would be a major factor in whether markets hold onto their gains, said Rebecca Patterson, chief markets strategist at JPMorgan Asset Management. Companies will begin to report next week, and analyst forecasts vary widely. That was a reflection of the uncertainty in the global economy, she said.

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The Labour Department said American employers added 103,000 jobs in September, while the unemployment rate remained at 9.1 per cent.

Still, economists cautioned that the numbers were weak and said the report seemed positive only in light of low expectations.

The jobs report showed an economy “neither reaccelerating nor shifting into recession", wrote Steve Blitz, senior economist for ITG Investment Research, in a report to investors.

He said the American economy remained vulnerable because of its reliance on exports.

“The employment data in the coming months should be more of the same, which isn’t much, and if growth starts to decelerate more rapidly around the world, negative jobs numbers are more likely than not," he wrote.

Fitch downgraded its rating on Italian debt one level after similar moves by the other major rating agencies in recent weeks. It cut its rating on Spain by two levels.

In both cases, the agency cited concerns about debt coupled with low growth. The outlook on both countries was negative.

The move weighed on Wall Street, particularly banks, whose exposure to the debt crisis in Europe is unclear. Shares for Bank of America dropped 6.1 per cent, JPMorgan Chase 5.2 per cent and Citigroup 5.3 per cent.

The euro also fell after Fitch’s action, to $US1.3384, from $US1.3449.

European markets, which closed before the downgrades, were moderately higher.